CFTChttp://www.businessinsider.com/category/cftc
en-usTue, 26 Sep 2017 18:11:38 -0400Tue, 26 Sep 2017 18:11:38 -0400The latest news on CFTC from Business Insiderhttp://static3.businessinsider.com/assets/images/bilogo-250x36-wide-rev.pngBusiness Insiderhttp://www.businessinsider.com
http://www.businessinsider.com/jon-corzine-to-pay-5-million-fine-over-mf-global-collapse-2017-1Former Goldman Sachs CEO and New Jersey Governor Jon Corzine agrees to pay a $5 million finehttp://www.businessinsider.com/jon-corzine-to-pay-5-million-fine-over-mf-global-collapse-2017-1
Thu, 05 Jan 2017 13:23:55 -0500Portia Crowe
<p><img style="float:right;" src="http://static6.businessinsider.com/image/586e8de5ee14b62a008b6c0b-708/undefined" alt="Former MF Global CEO Jon Corzine testifies before a House Financial Services Committee Oversight and Investigations Subcommittee hearing on the collapse of MF Global, at the U.S. Capitol in Washington, December 15, 2011. REUTERS/Jonathan Ernst" data-mce-source="Thomson Reuters" data-mce-caption="Corzine testifies before a House Financial Services Committee Oversight and Investigations Subcommittee hearing on the collapse of MF Global, at the U.S. Capitol in Washington" /></p><p>Former Goldman Sachs CEO and New Jersey Governor Jon Corzine has agreed to pay $5 million to the Commodity Futures Trading Commission&nbsp;to settle a lawsuit over the 2011 collapse of his hedge fund,&nbsp;MF Global.</p>
<p>That's <a href="http://www.reuters.com/article/us-mfglobal-corzine-idUSKBN14P251">according to Reuters</a>,&nbsp;which reports that Corzine has also agreed to never again register with the CFTC.</p>
<p>Corzine was the CEO of Goldman Sachs from 1994-1999. He was a US Senator from New Jersey from 2001 to 2006 and&nbsp;New Jersey governor from 2006-2010.&nbsp;</p>
<p>He was&nbsp;chairman and CEO of MF Global, technically a futures brokerage,&nbsp;from March 2010 until its bankruptcy in the fall of 2011.&nbsp;The CFTC filed civil charges against Corzine for using money from customer accounts for corporate purposes, <a href="http://blogs.marketwatch.com/thetell/2013/06/27/corzine-knowingly-directed-customer-fund-use-in-mf-globals-final-days-complaint-says/">according to Market Watch</a>.</p>
<p>In spring 2015, The Wall Street Journal reported that Corzine was <a href="http://www.businessinsider.com/jon-corzine-wsj-hedge-fund-report-2015-4">considering starting a hedge fund</a> with his own money and money from&nbsp;a small group of outside investors.&nbsp;</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/newsletter/wall-street-career-advice" >Want to get ahead on Wall Street? Here's everything you need to know to land your dream job</a></strong></p>
<p><a href="http://www.businessinsider.com/jon-corzine-to-pay-5-million-fine-over-mf-global-collapse-2017-1#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/tech-stocks-today-different-from-tech-bubble-2017-9">Here's what makes tech stocks today different from the tech bubble</a></p> http://www.businessinsider.com/goldman-sachs-pays-120-million-to-settle-cftc-case-on-alleged-isdafix-rigging-2016-12Goldman Sachs to pay $120 million to settle 'jacked' rates casehttp://www.businessinsider.com/goldman-sachs-pays-120-million-to-settle-cftc-case-on-alleged-isdafix-rigging-2016-12
Thu, 22 Dec 2016 02:39:14 -0500Sarah N. Lynch
<p><img style="float:right;" src="http://static3.businessinsider.com/image/585b8349dd089536208b4986-886/undefined" alt="A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013." data-mce-source="REUTERS/Brendan McDermid/File Photo" data-mce-caption="Goldman Sachs." data-link="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;VBID=2C0BXZDFL2KEZ&amp;SMLS=1&amp;RW=1440&amp;RH=718#/SearchResult&amp;VBID=2C0BXZDFL2KEZ&amp;SMLS=1&amp;RW=1440&amp;RH=718&amp;POPUPPN=6&amp;POPUPIID=2C0BF1F0NNFFV" /></p><p>Goldman Sachs will pay a $120 million (&pound;97 million) penalty to resolve civil charges that it attempted to manipulate a global benchmark for interest rate products known on Wall Street as "ISDAFIX," U.S. derivatives regulators said Wednesday.</p>
<p>The case against Goldman Sachs, <a href="http://www.cftc.gov/PressRoom/PressReleases/pr7505-16#PrRoWMBL">brought by the Commodity Futures Trading Commission (CFTC)</a>, was the latest in a series of broad investigations into manipulation by big banks of a variety of global benchmark rates.</p>
<p>To date, the CFTC has imposed penalties of over $5.2 billion (&pound;4.2 billion) stemming from these probes, which include Libor and Euribor, foreign exchange benchmarks, and the US Dollar International Swaps and Derivatives Association Fix, or USD ISDAFIX.</p>
<p>A number of banks have also resolved parallel criminal charges related to the manipulation of various global benchmarks.</p>
<p>Goldman Sachs, which was also accused by the CFTC of making false reports on the benchmark rate, will settle the case without admitting or denying the charges.</p>
<p>"We are pleased to have resolved these matters and have already taken steps to enhance our policies and procedures," bank spokesman Michael DuVally said in a statement.</p>
<p>ISDAFIX rates are used to help value the cash settlement of options on interest rate swaps and other products. Pension funds and local governments often rely on products priced off the benchmark rate to help hedge against future interest rate changes.</p>
<p>The CFTC said that emails and audio recordings showed traders at Goldman discussing their plans to try to move the benchmark rate in directions that benefited their own positions.</p>
<p>They tried to skew the bank's submissions used to help come up with the "print," or the reference rate that is captured each day at 11 a.m., the CFTC said.</p>
<p>They also traded various products at the 11 a.m. fixing time "in a manner deliberately designed" to influence the published rate, the CFTC added.</p>
<p>The CFTC said traders discussed trades as being based on the "jacked price" and not the "fair price," and how they had managed to "game the fix" to benefit their own positions.</p>
<p>The agency also accused the bank of failing to adequately cooperate earlier in the investigation by initially failing to produce certain documents.</p>
<p>Goldman Sachs is the third bank to settle an ISDAFIX benchmark case with the CFTC. The other two were Barclays in 2015 and <a href="http://uk.businessinsider.com/citi-fined-cftc-libor-isdafix-rate-fixing-evidence-chat-logs-transcripts-2016-5">Citigroup in 2016.</a></p><p><a href="http://www.businessinsider.com/goldman-sachs-pays-120-million-to-settle-cftc-case-on-alleged-isdafix-rigging-2016-12#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/heres-how-us-could-prevent-nuclear-strike-north-korea-cyber-attack-hacking-2017-4">How the US could prevent a North Korean nuclear strike — according to a former Marine and cyberwarfare expert</a></p> http://www.businessinsider.com/citi-fined-cftc-libor-isdafix-rate-fixing-evidence-chat-logs-transcripts-2016-5Citi was fined $425 million for rate manipulation — here are the secret trader transcriptshttp://www.businessinsider.com/citi-fined-cftc-libor-isdafix-rate-fixing-evidence-chat-logs-transcripts-2016-5
Thu, 26 May 2016 04:59:06 -0400Oscar Williams-Grut
<p><img style="float:right;" src="http://static6.businessinsider.com/image/5746b1a152bcd01a008c51f3-1281-961/rtx1mda6.jpg" alt="Former trader Tom Hayes arrives at Southwark Crown Court in London, Britain July 30, 2015. The jury in the London trial of former trader Tom Hayes, who is charged with eight counts of conspiracy to defraud by manipulating global Libor interest rates, is considering its verdict after hearing nine weeks of evidence. Hayes, a 35 year old former UBS and Citigroup yen derivatives trader based in Tokyo, pleaded not guilty to charges he conspired to rig the London interbank offered rate (Libor), a benchmark for $450 trillion of financial contracts and loans worldwide, between 2006 and 2010." data-mce-source="REUTERS/Peter Nicholls" data-mce-caption="Former Citi trader Tom Hayes is the only person so far to be convicted of fixing Libor. He is allegedly referenced in the evidence against Citi." data-link="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;VBID=2C0BXZ3IP7I51&amp;SMLS=1&amp;RW=1440&amp;RH=718&amp;RW=1440&amp;RH=718#/SearchResult&amp;VBID=2C0BXZ3IP7I51&amp;SMLS=1&amp;RW=1440&amp;RH=718&amp;POPUPPN=40&amp;POPUPIID=2C0BF1O7Q6JP4" /></p><p>The US Commodity Futures Trading Commission <a href="http://www.cftc.gov/PressRoom/PressReleases/pr7371-16#PRBoxR1">fined Citibank a combined $425 million (&pound;288.5 million) on Wednesday</a> to settle <a href="http://www.cftc.gov/PressRoom/PressReleases/pr7372-16#PrRoWMBL">various rate-fixing allegations from 2007 to 2012</a>.</p>
<p>The allegations center on the manipulation of Libor, a measure of rates that banks will lend to other banks at, and Isdafix, a measure used to set interest rates on swaps.</p>
<p>While you might not have heard of these measures, the two benchmarks are used to set the price of products worth millions, if not billions, each day. In other words, they have a huge effect on the economy.</p>
<p>The CFTC says Citi "on multiple occasions attempted to manipulate, and made false reports" about the Isdafix.</p>
<p>The bank is also "charged with attempting to manipulate Yen LIBOR and Euroyen TIBOR, and CJL [Citigroup Japan Ltd] with false reporting of Euroyen TIBOR, to benefit derivatives trading positions that were priced based on Yen LIBOR or Euroyen TIBOR."</p>
<p>"Separately, Citi is charged with the false reporting of U.S. Dollar LIBOR at times to avoid generating negative media attention and to protect its reputation during the financial crisis from the spring of 2008 through the summer of 2009."</p>
<p>That's quite a rap sheet.</p>
<p>Alongside the ruling, the CFTC published evidence taken from <a href="http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/citibankmisconduct052516.pdf">chat logs</a> and <a href="http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/libormisconduct052516.pdf">phone transcripts</a> pointing to the manipulation. We've picked out some of the most eye-catching parts below:</p><p><strong>SEE ALSO:&nbsp;<a href="http://uk.businessinsider.com/tom-hayes-turns-to-crowdfunding-to-raise-money-for-an-appeal-against-his-conviction-2016-5" >Jailed Libor trader Tom Hayes is crowdfunding to raise £150,000 to appeal his conviction</a></strong></p>
<p><strong>SEE ALSO:&nbsp;<a href="http://uk.businessinsider.com/read-the-bloomberg-chats-that-got-a-former-rbs-libor-trader-paul-white-banned-for-life-2016-4" >'What's it worth?': Read the Bloomberg chats that got a former RBS Libor trader banned for life</a></strong></p>
<h3>"... moved the screen btw"</h3>
<img src="http://static4.businessinsider.com/image/57469f1752bcd029008c529f-400-300/-moved-the-screen-btw.jpg" alt="" />
<p><p>The CFTC says: "<span>Citibank, by and through certain of its traders, attempted to manipulate and made false reports concerning USD ISDAFIX by skewing the Bank's USD ISDAFIX submissions, in the Bank's role as a panel bank in the USD ISDAFIX setting process, in order to benefit the Bank's trading positions at the expense of its derivatives counterparties."</span></p>
<p><span>In short, traders leaned on bankers at Citi who set Isdafix to move it in a way favorable to them. They also planned the timing of trades to make sure they influenced the Isdafix.</span></p>
<p><span>The CFTC says: "In addition, Citibank, through its traders, bid, offered, and executed trades in targeted interest rate products, including swap spreads and U.S. Treasuries, in a manner designed &mdash; including in timing and pricing &mdash; to influence the published USD ISDAFIX to benefit the Bank in its derivatives positions, according to the Order."</span></p></p>
<br/><br/><h3>"... you think we can push the 2y spread lower before 11?"</h3>
<img src="http://static2.businessinsider.com/image/57469f7052bcd066018c539e-400-300/-you-think-we-can-push-the-2y-spread-lower-before-11.jpg" alt="" />
<p><p>The CFTC says Citi cooperated with its investigation but initially made incorrect claims about its fixing.&nbsp;</p>
<p>The regulator says: "<span>According to the Order, Citibank's cooperation improved after the Division said that it expected the Bank to make productions more expeditiously, after which Citibank discovered and produced evidence showing that its initial statements about certain misconduct were incorrect."</span></p></p>
<br/><br/><h3>"[I]s it easy to push these days?"</h3>
<img src="http://static5.businessinsider.com/image/5746a03d910584cc008c5392-400-300/is-it-easy-to-push-these-days.jpg" alt="" />
<p><p><span>Aitan Goelman, the CFTC's director of enforcement, <a href="http://www.cftc.gov/PressRoom/PressReleases/pr7371-16#PRBoxR1">says in the statement on the settlement</a>: "<span>The CFTC's order demonstrates that we will vigorously continue to investigate any efforts to manipulate financial benchmarks, and we will take action where possible to protect the integrity of these benchmarks."</span></span></p>
<p><span><span>The CFTC has fined 17 banks and brokers a collective $5.08 billion for fixing Libor&nbsp;and Isdafix and manipulating FX rates.</span></span></p></p>
<br/><br/><a href="http://www.businessinsider.com/citi-fined-cftc-libor-isdafix-rate-fixing-evidence-chat-logs-transcripts-2016-5#/#i-could-do-the-high-6-month-libor-like-right-now-4">See the rest of the story at Business Insider</a> http://www.businessinsider.com/spoofing-verdict-2015-10There's a new way traders are defrauding the market — and they're starting to get busted for ithttp://www.businessinsider.com/spoofing-verdict-2015-10
Wed, 04 Nov 2015 11:21:22 -0500Portia Crowe
<p><img style="float:right;" src="http://static1.businessinsider.com/image/5533dbcd6da8117129cd9f25-1016-762/spain-bullfighters-matador.jpg" alt="spain bullfighters matador" data-mce-source="REUTERS/Marcelo del Pozo" data-mce-caption="Spanish matador Esau Fernandez performs a pass with a bull during a bullfight at The Maestranza bullring in the Andalusian capital of Seville, southern Spain April 15, 2015. " /></p><p><span>Panther Energy trader&nbsp;Michael Coscia has been <a href="http://www.bloomberg.com/news/articles/2015-11-03/commodities-trader-coscia-found-guilty-in-first-spoofing-trial">found guilty</a> in a high-profile market-manipulation trial in Chicago.&nbsp;</span></p>
<p><span>His crime? Spoofing.</span></p>
<p><span>It's a funny-sounding term for the practice of&nbsp;making and cancelling bets in a way that can push prices around.&nbsp;</span></p>
<p><span>It's what</span>&nbsp;alleged "Flash Crash" trader&nbsp;<a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">Navinder Singh Sarao</a>&nbsp;was accused of <a href="http://www.cnbc.com/2015/09/03/us-grand-jury-indicts-london-based-flash-crash-trader-sarao.html">earlier this year</a>.</p>
<p>Spoofing investigations have actually become quite a trend&nbsp;at&nbsp;the Justice Department, the Securities and Exchange Commission, and other regulators.</p>
<p><span>But</span>&nbsp;Coscia is the first person to be found guilty of spoofing since it was forbidden under the 2010 Dodd-Frank Act, and his conviction shows that a key defense against the charge may not be effective.&nbsp;</p>
<p><span>Coscia</span>&nbsp;was indicted last year and <a href="https://www.bridgingtheweek.com/ckfinder/userfiles/files/Coscia-%20Memo%20to%20Dismiss%20Indictment%281%29.pdf">charged with multiple counts</a> of commodities fraud and spoofing. Prosecutors say the&nbsp;<span>Chicago-based high-frequency commodities trader&nbsp;defrauded the market to make some $1.6 million in illegal profits.</span></p>
<p>His lawyers <a href="https://www.bridgingtheweek.com/ckfinder/userfiles/files/Coscia-%20Memo%20to%20Dismiss%20Indictment%281%29.pdf">tried&nbsp;to prove</a> that the anti-spoofing law is "hopelessly vague, and its criminal enforcement would violate Michael Coscia's right to due process of law."</p>
<p>They didn't succeed.</p>
<h2>What is spoofing?</h2>
<p><span>Fraud attorney Celiza Bragan&ccedil;a of Stoltmann Law, who worked on a spoofing case while at the SEC in the early 2000s, told us last month&nbsp;how the crime occurs:</span></p>
<ul>
<li><span style="line-height: 1.5em;">A trader makes a large bet on or against a security.</span></li>
<li><span style="line-height: 1.5em;">The market reacts to that bet &mdash; sending the security's price up or down.</span></li>
<li><span style="line-height: 1.5em;">The trader cancels&nbsp;</span><span style="line-height: 1.5em;">their bet once the market reacts.</span></li>
<li><span style="line-height: 1.5em;">The trader takes advantage of other investors' reactions by betting on or against the security for real.</span></li>
</ul>
<p>Spoofing trades don't make huge amounts of money. Instead&nbsp;they make small amounts over and over again.</p>
<p>"No one's going to make a million dollars on a trade," said&nbsp;Peter Henning,&nbsp;a securities litigation professor at Wayne State University. "You're going to make a dollar on a million trades. And of course, you're not gonna make that same dollar from each person."</p>
<p>When&nbsp;Bragan&ccedil;a took day trader&nbsp;<a href="https://www.sec.gov/litigation/litreleases/lr18926.htm">Stanley Awdisho</a> to court for spoofing some 15 years ago, the practice, also known as a "pull and hit," was little known, and the term spoofing was rarely used. But with the advent of high-speed-trading technology, it's become more prominent, and regulators are starting to take note.</p>
<p>Another case involves Chicago trader Igor Oystacher of 3Red Group, who is <a href="http://www.wsj.com/articles/how-spoofing-traders-dupe-markets-1424662202">under investigation</a> by the Commodity Futures Trading Commission for spoofing in June 2012. CME Group banned him from trading for a month last year and the FBI is also reportedly looking into the case.</p>
<p><img src="http://static4.businessinsider.com/image/562e50da9dd7cc10008c4a9e-2499-1874/rtx1sf7t.jpg" alt="Navinder Sarao" data-mce-source="REUTERS/Peter Nicholls" data-mce-caption="Navinder Sarao (C) leaves Westminster Magistrates Court following the adjournment of his extradition hearing in London, September 25, 2015." data-link="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;VBID=2C0BXZJF307OF&amp;SMLS=1&amp;RW=1512&amp;RH=902#/SearchResult&amp;VBID=2C0BXZJF307OF&amp;SMLS=1&amp;RW=1512&amp;RH=902&amp;POPUPPN=1&amp;POPUPIID=2C0BF1OJ18GL7" /></p>
<p>The tactic was outlawed in the 2010 Dodd-Frank regulation, but, as with other forms of fraud, it's hard to prove the trader's <em>intent</em>&nbsp;&mdash; in this case, the intent to cancel the order. Prosecutors must prove the trader didn't change his or her mind for legitimate reasons after placing the trade.</p>
<p>High-frequency-trading technology has made it even easier than before.</p>
<p>"They are truly done in the blink of an eye, and it's designed to take advantage of the algorithms that look for price disparities in the market," said Henning. "Spoofing is signaling. I put in a small order and then a real big one, and I'm hoping the big one attracts you, and then you'll throw my small one. And then I just dump the big one."</p>
<h2>Who does it hurt?</h2>
<p>In Henning's view, the fact that highly sophisticated technology is a necessary requirement for spoofing also means that the people who are most affected by it are other sophisticated, high-speed traders.</p>
<p>"This is Wall Street," he said. "Everybody is trying to profit from everyone else."</p>
<p>But he acknowledged that there is some impact on individual investors, mutual funds, pension funds, and other non-Wall Streeters, albeit small.</p>
<p>"It may push the price up a penny at which moment their order is executed. It could be that the price went up 2 or 3 cents ... but they may be in there buying or selling at that moment," he said.</p>
<p>Bragan&ccedil;a&nbsp;foresees a wider impact. She worries that if pension funds and other investors cannot count on market regulation, they'll take their investments to other markets outside of the US.</p>
<p>"It's just like insider trading: It appears to be a victimless crime, but there is somebody on the other side who is selling, or buying, and that person is not getting the advantage of the market being able to reflect that information," she said.</p>
<p>She expects to see more spoofing cases taken to court as the SEC and other regulators catch onto the activity.</p>
<p>"That's just the nature of a financial market," she said. "There's a lot of money at stake and the regulators are always going to be a few steps behind. But the key is that they're going to get there."</p>
<p>Here's <a href="https://www.bridgingtheweek.com/ckfinder/userfiles/files/Coscia-%20Memo%20to%20Dismiss%20Indictment%281%29.pdf">Michael Coscia's case</a>.</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/the-bloomberg-feature-every-trader-felt-lost-without-2015-4" >The one Bloomberg feature every trader felt lost without</a></strong></p>
<p><a href="http://www.businessinsider.com/spoofing-verdict-2015-10#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/fanduel-cofounder-controversy-no-wrongdoing-2015-10">FanDuel cofounder on 'insider trading' controversy: 'There was no wrongdoing'</a></p> http://www.businessinsider.com/what-is-spoofing-2015-10A Chicago 'spoofing' trial could reshape Wall Street trading lawhttp://www.businessinsider.com/what-is-spoofing-2015-10
Mon, 26 Oct 2015 12:59:10 -0400Portia Crowe
<p><img style="float:right;" src="http://static1.businessinsider.com/image/5533dbcd6da8117129cd9f25-1016-762/spain-bullfighters-matador.jpg" alt="spain bullfighters matador" data-mce-source="REUTERS/Marcelo del Pozo" data-mce-caption="Spanish matador Esau Fernandez performs a pass with a bull during a bullfight at The Maestranza bullring in the Andalusian capital of Seville, southern Spain April 15, 2015. " /></p><p>There's a big trial <a href="http://www.bloomberg.com/news/articles/2015-10-26/spoofing-law-gets-biggest-test-yet-before-a-chicago-jury">going on this week</a> that could reshape the law on market manipulation &mdash; and it's all about "spoofing."</p>
<p>Remember that?</p>
<p>Spoofing is what the alleged 'Flash Crash' trader, <a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">Navinder Singh Sarao</a>, was accused of <a href="http://www.cnbc.com/2015/09/03/us-grand-jury-indicts-london-based-flash-crash-trader-sarao.html">earlier this year</a>.</p>
<p>But Sarao's is not the only spoofing case.</p>
<p>Spoofing investigations have actually become quite a trend, and the Justice Department, the Securities and Exchange Commission, and other regulators have been investigating a number of alleged spoofing cases this year.</p>
<p><a href="https://www.bridgingtheweek.com/ckfinder/userfiles/files/Coscia-%20Memo%20to%20Dismiss%20Indictment%281%29.pdf">This week's case</a> is about a Chicago-based high-frequency commodities trader who prosecutors say defrauded the market to make some $1.6 million in illegal profits.</p>
<p>That trader,&nbsp;Michael Coscia, was indicted last year and <a href="https://www.bridgingtheweek.com/ckfinder/userfiles/files/Coscia-%20Memo%20to%20Dismiss%20Indictment%281%29.pdf">charged with multiple counts</a> of commodities fraud and spoofing, which is forbidden under a new provision in the Dodd-Frank Act.</p>
<p>Now, the trader's lawyers want to prove that the anti-spoofing law is "hopelessly vague, and its criminal enforcement would violate Michael Coscia's right to due process of law."</p>
<p>It could be a game changer.</p>
<p>So what is spoofing?</p>
<h2>It's all about intent</h2>
<p>One person who would know is&nbsp;<span>fraud attorney Celiza Bragan&ccedil;a of Stoltmann Law, who worked on a spoofing case while at the SEC in the early 2000s.</span></p>
<p>Bragan&ccedil;a told us spoofing<span style="line-height: 1.5em;">&nbsp;goes like this:</span></p>
<ul>
<li><span style="line-height: 1.5em;">A trader makes a large bet on or against a security.</span></li>
<li><span style="line-height: 1.5em;">The market reacts to that bet &mdash; sending the security's price up or down.</span></li>
<li><span style="line-height: 1.5em;">The trader cancels&nbsp;</span><span style="line-height: 1.5em;">their bet once the market reacts.</span></li>
<li><span style="line-height: 1.5em;">The trader takes advantage of other investors' reactions by betting on or against the security for real.</span></li>
</ul>
<p>Spoofing trades don't make huge amounts of money every time they happen.</p>
<p>"No one's going to make a million dollars on a trade," said&nbsp;Peter Henning,&nbsp;a securities litigation professor at Wayne State University. "You're going to make a dollar on a million trades. And of course, you're not gonna make that same dollar from each person."</p>
<p>When&nbsp;Bragan&ccedil;a took day trader&nbsp;<a href="https://www.sec.gov/litigation/litreleases/lr18926.htm">Stanley Awdisho</a> to court for spoofing some 15 years ago, the practice, also known as a "pull and hit," was little-known, and the term spoofing rarely used. But with the advent of high-speed trading technology, it's become more prominent, and regulators are starting to take note.</p>
<p>Another case involves Chicago trader Igor Oystacher of 3Red Group, who is <a href="http://www.wsj.com/articles/how-spoofing-traders-dupe-markets-1424662202">under investigation</a> by the Commodity Futures Trading Commission for spoofing in June of 2012. CME Group banned him from trading for a month last year and the FBI is also reportedly looking into the case.</p>
<p><img src="http://static4.businessinsider.com/image/562e50da9dd7cc10008c4a9e-2499-1874/rtx1sf7t.jpg" alt="Navinder Sarao" data-mce-source="REUTERS/Peter Nicholls" data-mce-caption="Navinder Sarao (C) leaves Westminster Magistrates Court following the adjournment of his extradition hearing in London, September 25, 2015." data-link="http://pictures.reuters.com/C.aspx?VP3=SearchResult&amp;VBID=2C0BXZJF307OF&amp;SMLS=1&amp;RW=1512&amp;RH=902#/SearchResult&amp;VBID=2C0BXZJF307OF&amp;SMLS=1&amp;RW=1512&amp;RH=902&amp;POPUPPN=1&amp;POPUPIID=2C0BF1OJ18GL7" /></p>
<p>The tactic was outlawed in the 2010 Dodd-Frank regulation, but, as with other forms of fraud, it's hard to prove the trader's <em>intent</em> &ndash; in this case, the intent to cancel the order. Prosecutors must prove the trader didn't change his or her mind for legitimate reasons after placing the trade.</p>
<p>High-frequency trading technology has made it even easier than before.</p>
<p>"They are truly done in the blink of an eye, and it's designed to take advantage of the algorithms that look for price disparities in the market," said Henning. "Spoofing is signalling. I put in a small order and then a real big one, and I'm hoping the big one attracts you, and then you'll throw my small one. And then I just dump the big one."</p>
<h2>Who does it hurt?</h2>
<p>In Henning's view, the fact that highly sophisticated technology is a necessary requirement for spoofing also means that the people who are most affected by it are other sophisticated, high-speed traders.</p>
<p>"This is Wall Street," he said. "Everybody is trying to profit from everyone else."</p>
<p>But he acknowledged that there is some impact on individual investors, mutual funds, pension funds, and other non-Wall Streeters, albeit small.</p>
<p>"It may push the price up a penny at which moment their order is executed. It could be that the price went up 2 or 3 cents... but they may be in there buying or selling at that moment," he said.</p>
<p>Bragan&ccedil;a&nbsp;foresees a wider impact. She worries that if pension funds and other investors cannot count on market regulation, they'll take their investments to other markets outside of the US.</p>
<p>"It's just like insider trading: it appears to be a victimless crime, but there is somebody on the other side who is selling, or buying, and that person is not getting the advantage of the market being able to reflect that information," she said.</p>
<p>She expects to see more spoofing cases taken to court as the SEC and other regulators catch onto the activity.</p>
<p>"That's just the nature of a financial market," she said. "There's a lot of money at stake and the regulators are always going to be a few steps behind. But the key is that they're going to get there."</p>
<p>Here's <a href="https://www.bridgingtheweek.com/ckfinder/userfiles/files/Coscia-%20Memo%20to%20Dismiss%20Indictment%281%29.pdf">Michael Coscia's case</a>.</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/the-bloomberg-feature-every-trader-felt-lost-without-2015-4" >The one Bloomberg feature every trader felt lost without</a></strong></p>
<p><a href="http://www.businessinsider.com/what-is-spoofing-2015-10#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/robot-carves-michelangelo-statue-unfinished-works-prigioni-2015-3">Watch this robot carve one of Michelangelo's unfinished works</a></p> http://www.businessinsider.com/goldman-sp-500-sentiment-indicator-low-2015-10GOLDMAN: This indicator is so bearish, it's actually bullish for stocks (SPY, DJI, IXIC, QQQ, SPX)http://www.businessinsider.com/goldman-sp-500-sentiment-indicator-low-2015-10
Wed, 21 Oct 2015 11:07:39 -0400Akin Oyedele
<p>Investors are bearish on stocks. But this might actually be bullish.</p>
<p>In a report looking at investors sentiment,&nbsp;Goldman Sachs' David Kostin and team find that investors are down on stocks, which could signal a near-term move higher.&nbsp;</p>
<p>The indicator includes data from the Commodity Futures Trading Commission (CFTC) on investors who are "net short" S&amp;P 500 futures, or holding more bets that stocks will fall over bets they'll rise.&nbsp;</p>
<p>In a note to clients on Tuesday, Goldman's David Kostin noted that for the first time since CFTC started making the data public in 2006, investors have been net short stocks&nbsp;for seven straight weeks.&nbsp;The bearish positioning kicked in after the big sell-off in August.</p>
<p>Kostin wrote:</p>
<p style="padding-left: 60px;">The latest CFTC data show institutional asset managers and leveraged&nbsp;funds remain positioned net short across S&amp;P 500 futures in aggregate.&nbsp;<strong>Our sentiment indicator stands at 10, suggesting near-term upside to the&nbsp;S&amp;P 500.</strong> On a fundamental basis, our year-end target equals 2000.</p>
<p style="padding-left: 60px;">Investor positioning as measured via S&amp;P 500 futures contracts has been a&nbsp;statistically significant predictor of forward S&amp;P 500 returns. Following readings of "stretched" investor positioning characterized by significant net long positions, the S&amp;P&nbsp;500 tends to trade down in subsequent weeks. Conversely, when investors have been&nbsp;positioned very lightly in futures, the S&amp;P 500 tends to trade up in the following weeks.</p>
<p>The S&amp;P 500 was trading at around 2,035 on Wednesday, so above where Goldman expects the index to finish the year.&nbsp;</p>
<p>But the&nbsp;latest positioning from investors is yet another bearish indicator that may in fact be bullish.<img src="http://static1.businessinsider.com/image/56278f74bd86eff45b8b8667-1088-796/screen shot 2015-10-21 at 9.12.54 am.png" alt="Screen Shot 2015 10 21 at 9.12.54 AM" data-mce-source="Goldman" /></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/us-stock-market-consumer-discretionary-sector-world-economy-2015-10" >The lonely green bar on this chart says it all</a></strong></p>
<p><a href="http://www.businessinsider.com/goldman-sp-500-sentiment-indicator-low-2015-10#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/mercedes-ad-back-to-the-future-robot-dog-walker-doc-2015-10">These Mercedes ads give a nice hat tip to 'Back to the Future II'</a></p> http://www.businessinsider.com/traders-are-worried-about-dollar-rally-2015-4The dollar is tanking and traders are worried the rally is over (USD, UUP)http://www.businessinsider.com/traders-are-worried-about-dollar-rally-2015-4
Thu, 30 Apr 2015 12:40:28 -0400Akin Oyedele
<p><img style="float:right;" src="http://static6.businessinsider.com/image/510bd6296bb3f7304300001c-566-424/burning-money-five-dollar-bill.jpg" alt="Burning money five dollar bill" border="0"></p><p>The US dollar has had a rough month.</p>
<p>In a report, Bloomberg <a href="http://www.bloomberg.com/news/articles/2015-04-30/dollar-bulls-seen-facing-more-pain-as-fed-ambiguity-tests-rally">notes</a> that the dollar is down for a seventh straight day, the longest such streak in three years.</p>
<p>It's also down for April, and could end a nine-month streak, as Ryan Detrick points out on <a href="http://stocktwits.com/RyanDetrick/message/36136671?utm_medium=community-tumblr-link&amp;utm_campaign=outboundteam&amp;utm_source=stocktwits.tumblr.com">StockTwits</a>.</p>
<p><span>On Thursday, the dollar index fell by up to 0.18%.&nbsp;</span></p>
<p>And now, traders are starting to lose confidence in this rally, which has taken the dollar to an 11-year high.</p>
<p>From the <a href="http://www.bloomberg.com/news/articles/2015-04-30/dollar-bulls-seen-facing-more-pain-as-fed-ambiguity-tests-rally">report in Bloomberg</a>:&nbsp;</p>
<p style="padding-left: 60px;"><strong>The drop has surprised speculators who were the most bullish on the dollar in at least six years, leading investors to question the $5.3 trillion currency market’s biggest one-way trade.</strong> The divergence between a Fed that’s seeking to normalize rates, and the more than 20 central banks worldwide that cut borrowing costs this year, had made betting on the dollar seem almost a sure thing.</p>
<p>The number of trader bets on the dollar's continued rise is higher than those forecasting a move in the opposite direction.</p>
<p>But according to Bloomberg, that difference, or net bullish bets, shrunk to a six-month low last week. The data is compiled by the Commodity Futures Trading Commission.</p>
<p>As the Fed made moves towards raising rates <span>while other central banks kept rates low</span>, the dollar became more attractive.&nbsp;</p>
<p>But the rally has slowed down.</p>
<p><a href="http://www.bloomberg.com/news/articles/2015-04-30/dollar-bulls-seen-facing-more-pain-as-fed-ambiguity-tests-rally"><strong>Head over to Bloomberg for the full story »</strong></a></p>
<p><img src="http://static2.businessinsider.com/image/5542557feab8eaa667efd3b4-1200-522/usdfut_chart (21).png" alt="usdfut_chart (21)" border="0"></p><p><a href="http://www.businessinsider.com/traders-are-worried-about-dollar-rally-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/buying-power-of-your-dollar-food-groceries-gas-2015-1">How The Buying Power Of Your Dollar Has Changed Over The Past 60 Years</a></p> http://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4TRADERS: The 'Flash Crash' arrest is a jokehttp://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4
Sun, 26 Apr 2015 09:22:00 -0400Julia La Roche
<p>Traders we spoke with think the arrest of a 36-year-old UK-based trader for his alleged involvement in the 2010 "Flash Crash" is a total joke.</p>
<p>On Tuesday, futures trader Navinder Singh Sarao <a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">was arrested</a> in London in connection with charges in the US.</p><p><a href="http://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/game-of-thrones-economics-2015-3">'Game of Thrones': The Iron Throne is a terrible investment</a></p> http://www.businessinsider.com/what-is-spoofing-the-market-2015-4Traders have been ‘spoofing’ the market and now regulators are finally catching onhttp://www.businessinsider.com/what-is-spoofing-the-market-2015-4
Sat, 25 Apr 2015 16:57:00 -0400Portia Crowe
<p>On Tuesday, trader Navinder Singh Sarao was <a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">arrested in London in connection with the Flash Crash of 2010</a>.</p>
<p>His charge: "spoofing."</p>
<p>Sarao's case is just the latest in a recent wave of spoofing investigations being conducted by the Justice Department, the Securities and Exchange Commission and other regulators.</p><p><a href="http://www.businessinsider.com/what-is-spoofing-the-market-2015-4#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/emails-sent-by-trader-navinder-sarao-2015-4The arrested 'Flash Crash' trader claimed he was 'insomniac' who could make $133,000 on an average dayhttp://www.businessinsider.com/emails-sent-by-trader-navinder-sarao-2015-4
Thu, 23 Apr 2015 15:48:47 -0400Julia La Roche
<p><span style="line-height: 1.5em;"><img style="float:right;" src="http://static4.businessinsider.com/image/55394b4c69bedd7863834ca9-797-598/flash-flash-crash-fireworks-firecracker-flash-of-light.png" border="0" alt="flash, flash crash, fireworks, firecracker, flash of light">It's been nearly five years since the "Flash Crash" and regulators are now blaming it on an little-known 36-year-old who traded futures from his parents' house in a London suburb.</span></p>
<p><span style="line-height: 1.5em;"><span>Navinder "Nav" Sarao, an "insomniac" who said traded S&amp;P futures using the click of a mouse,&nbsp;</span><a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">was arrested</a><span>&nbsp;in London on Tuesday.</span></span></p>
<p><span style="line-height: 1.5em;"><span>He's been charged on one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of&nbsp;</span><a href="http://www.businessinsider.com/what-is-spoofing-the-market-2015-4">"spoofing"&nbsp;</a><span>— buying or selling large orders with the intent to cancel.&nbsp;</span><span>Sarao was&nbsp;</span><a href="http://www.reuters.com/article/2015/04/22/us-flashcrash-trader-idUSKBN0ND17220150422">granted</a><span>&nbsp;bail and the US is seeking extradition.</span></span></p>
<p><span style="line-height: 1.5em;"><a href="http://images.businessweek.com/bloomberg/pdfs/CFTC-Sarao-filing-emails.pdf">Bloomberg News uncovered some emails sent by Sarao</a>&nbsp;that the Commodities Futures Trading Commission (CFTC) released as part of its court filings. The emails provide insight into Sarao's trading style. &nbsp;<a href="http://images.businessweek.com/bloomberg/pdfs/CFTC-Sarao-filing-emails.pdf"></a></span></p>
<h3><span style="line-height: 1.5em;">He 'changes his mind very very quickly.'</span></h3>
<p><span style="line-height: 1.5em;">In a May 29, 2014 email sent to Joanna Jasina of the UK's Financial Conduct Authority, Sarao described himself as an "old school point and click prop trader" and someone who "changes his mind very very quickly."&nbsp;</span><span style="line-height: 1.5em;">&nbsp;</span></p>
<p style="padding-left: 30px;"><span>"I am an old school point and click prop trader. To this day I am still using the mouse to trade. That is how I trade, that is how I always have traded, admittedly very very fast because I have always been good with reflexes and doing things quick. My trading is for the most part very short term and for very small profits, a large proportion of my profits are 1 price movements, which in the eminiSP's case would be a quarter of a tick. I have also take[n] longer term positions in the past and my biggest day was actually made for hte most part whilst I was sleeping!&nbsp;</span></p>
<p style="padding-left: 30px;"><span>"I am a trader who changes his mind very very quickly, one second I am prepared to buy the limit of 2,000, the next second I may change my mind and get out. This is what is unique about my trading. I trade very large but change my mind in a second. This is why MF Global had to speed up their systems for me, yes they have other hedge funds etc trading 2,000 lots, but they didn't have anyone buying 2,000 and getting out seconds later and then going short a thousand. All this traded volume was something that MF global's system was not prepared for and I remember at the start their system was too slow for me. And all this is done with the hand and a mouse."</span></p>
<h3><span style="line-height: 1.5em;">He's not a high-frequency trader.</span></h3>
<p><span style="line-height: 1.5em;">He went on to complain to the FCA about high frequency traders (HFT).&nbsp;</span></p>
<p style="padding-left: 30px;"><span style="line-height: 1.5em;">"I don't like the HFT arena and have complained to the exchange numerous times about their manipulative practices, please BAN IT."&nbsp;</span></p>
<h3><span style="line-height: 1.5em;">He barely sleeps.</span></h3>
<p><span style="line-height: 1.5em;">In an email to his broker, RJ O'Brien &amp; Associates, dated October 22, 2012, Sarao detailed the hours he keeps and called himself an "insomniac."</span></p>
<p style="padding-left: 30px;"><span style="line-height: 1.5em;">"I'm an insomniac–I normally can't get to sleep before 4am, which isn't a problem because US trading opens at 2.30pm here–so normally I sleep between 4am to about noon."</span></p>
<h3><span style="line-height: 1.5em;">He made most of his money in just 20 days of trading. </span></h3>
<p><span style="line-height: 1.5em;">He continued to explain to RJO that he made most of his money in just a handful of trading days. </span></p>
<p style="padding-left: 30px;"><span style="line-height: 1.5em;">"I have made the majority of my net worth in I would say no more than 20 days trading, that's how I trade–mostly I hardly work but when it's volatile I have to work 12 hours a day. I prefer it that way. It's catch 22, I haven't traded properly since I've been with RJO because the only volatile day was Friday, but then again I fear it getting volatile because the system obviously can't cope, when normally I am begging for it to be volatile."</span></p>
<h3><span style="line-height: 1.5em;">He claimed that he could make $133,000 in an average day.</span></h3>
<p><span style="line-height: 1.5em;">Back in 2007, he sent an email to Doubledown Media–the now-defunct publisher of <em>Trader Monthly–&nbsp;</em>inquiring about joining the ranks of the now-shuttered magazine's "30 Under 30" list. On an average trading day, he claimed that he could make $133,000.&nbsp;</span></p>
<p style="padding-left: 30px;"><span style="line-height: 1.5em;">"I am a local who works on a 90/10 split. I trade the e-mini SP 500 on volatile trading days I do an average of 10,000 round turns or about 1% of the SP 500's total daily volume. If I trade well on a volatile day I normally make circa $133,000. On quieter days I look to make between $45,000 and $70,000." &nbsp;</span></p>
<p><span style="line-height: 1.5em;">According to the complaint, Sarao allegedly used an algorithm to manipulate the market for E-Mini S&amp;P 500 futures contracts, or "E-Minis," on the Chicago Mercantile Exchange (CME).</span></p>
<p><span style="line-height: 1.5em;">"Sarao’s alleged manipulation earned him significant profits and contributed to a major drop in the U.S. stock market on May 6, 2010, that came to be known as the 'Flash Crash,'"&nbsp;the Department of Justice said in a statement.&nbsp;</span></p>
<p>A number of futures traders we spoke to <a href="http://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4">called the case against Sarao a total "joke."</a> The consensus view was that there was no way the "Flash Crash" was caused by one individual.&nbsp;</p>
<p>Traders aren't the only ones who are skeptical.&nbsp;<a href="http://www.businessinsider.com/r-flash-crash-market-manipulation-case-poses-test-for-prosecutors-2015-4">Securities lawyers also told Reuters</a>&nbsp;that this case is going to be difficult to prosecute because they have to show that Sarao intentionally canceled orders.</p>
<p>Here's the full email Sarao sent to the FCA:&nbsp;</p>
<p><img src="http://static5.businessinsider.com/image/553944976bb3f7e25b5577b2-755-789/sarao1.jpg" border="0" alt="Sarao1"></p>
<p><img src="http://static2.businessinsider.com/image/55394497ecad0449332d5fe0-755-262/sarao2.jpg" border="0" alt="SArao2"></p>
<p><img src="http://static3.businessinsider.com/image/55394497eab8ea9d40ac5d5a-832-882/sarao3.jpg" border="0" alt="Sarao3"></p><p><a href="http://www.businessinsider.com/emails-sent-by-trader-navinder-sarao-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/charge-iphone-faster-apple-battery-life-2015-2">How to supercharge your iPhone in only 5 minutes</a></p> http://www.businessinsider.com/how-the-flash-crash-unfolded-2015-4This is how the 'Flash Crash' went down in 2010http://www.businessinsider.com/how-the-flash-crash-unfolded-2015-4
Thu, 23 Apr 2015 09:01:58 -0400Jill Treanor
<p><img style="float:right;" src="http://static4.businessinsider.com/image/5538ebe86bb3f7045f5577b3-1200-924/traders-nyse-13.jpg" alt="traders NYSE" border="0"></p><p>It was 6 May 2010. In the UK it was general election day, in the US,Wall Street was gripped by mounting anxiety about the Greek debt crisis. The euro was falling against the dollar and the yen, but despite the turbulent start to the trading day, no one had expected the near 1,000-point dive in share prices.</p>
<p>In a matter of minutes the Dow Jones index lost almost 9% of its value – in a sequences of events that quickly became known as “flash crash” . Hundreds of billions of dollars were wiped off the share prices of household name companies like Proctor &amp; Gamble and General Electric. But the carnage , which took place at a speed never before witnessed, did not last long. The market rapidly regained its composure and eventually closed 3% lower.</p>
<p>There was a frenzy of speculation about what might have caused the rout, with explanations ranging from fat fingered trading to a cyberattack. But within days, officials in the US were blaming <a href="http://www.theguardian.com/business/2010/may/12/wall-street-flash-crash">big bets by a trader on Chicago’s derivatives exchange</a>. By the end of September, an official report by the two main US regulators pointed to a $4.1bn (£2.7bn) sell order instigated by a US mutual fund, said to be Waddell &amp; Reed.</p>
<p>At 2.32 pm, the mutual fund had used an automated algorithm trading strategy to sell contracts known as e-minis. It was the largest change in the daily position of any investor so far that year and sparked selling by other traders, including high frequency traders.</p>
<p>The <a href="https://www.sec.gov/news/studies/2010/marketevents-report.pdf">official report</a> by the Securities and Exchange Commission and the Commodity Futures Trading Commission outlined a “hot potato” effect as the HFTs started and buying and then reselling the e-mini contracts. Some orders were executed at “irrational prices” as low as one penny or as high as $100,000 before the share prices returned to their pre-crash levels by 3pm. In just 20 minutes, 2bn shares worth $56bn had changed hands.</p>
<p><img class="nc_pixel" src="https://pixel.newscred.com/px.gif?key=YXJ0aWNsZT05NjYxYTE3OWM5MzFmYjQ4MzM5M2FkODA3ZWI5NjE3MyZwdWJsaXNoZXI9NzMwZWI4NmFiNTlmMGQ0MTkyNmFjNjViMDFmODNlMmY=" alt="" border="0" height="1" width="1"></p><p><a href="http://www.businessinsider.com/how-the-flash-crash-unfolded-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/nyse-trader-explains-vix-2013-6">NYSE Trader Explains The Importance Of The VIX</a></p> http://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4TRADERS: The 'Flash Crash' arrest is a jokehttp://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4
Wed, 22 Apr 2015 11:46:00 -0400Julia La Roche
<p><img style="float:right;" src="http://static5.businessinsider.com/image/5537bb44eab8ea044470cb60-1197-897/sarao-1.png" border="0" alt="Sarao"></p><p>Traders we spoke with think the arrest of a 36-year-old UK-based trader for his alleged involvement in the 2010 "Flash Crash" is a total joke.</p>
<p>On Tuesday, futures trader Navinder Singh Sarao <a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">was arrested</a> in London in connection with charges in the US.</p>
<p>He's been charged on one count of wire fraud, 10 counts of commodities fraud, 10 counts of commodities manipulation, and one count of <a href="http://www.businessinsider.com/what-is-spoofing-the-market-2015-4">"spoofing" </a>— buying or selling large orders with the intent to cancel.</p>
<p>Sarao was <a href="http://www.reuters.com/article/2015/04/22/us-flashcrash-trader-idUSKBN0ND17220150422">granted</a> bail and the US is seeking extradition.</p>
<p>According to the complaint, Sarao allegedly used an algorithm to manipulate the market for E-Mini S&amp;P 500 futures contracts, or "E-Minis," on the Chicago Mercantile Exchange (CME).</p>
<p>"Sarao’s alleged manipulation earned him significant profits and contributed to a major drop in the U.S. stock market on May 6, 2010, that came to be known as the 'Flash Crash,'" <span>the Department of Justice said in a statement. "</span>On that date, the Dow Jones Industrial Average fell by approximately 600 points in a five-minute span, following a drop in the price of E-Minis."</p>
<p><span>Here's how futures traders reacted (emphasis added):</span></p>
<ul>
<li>"Well what he did is a problem for CME, which they are cleaning up. They have been cracking down over past 6 months hard. <strong>He was not the cause of the flash crash. That is a joke</strong>," one New York-based trader said. (The problem the trader is referring to is "spoofing.")</li>
<li>"[Spoofing] is a separate issue, but spoofing doesn't happen risk free," another trader said. "If someone is in the market spoofing it they are taking the chance that a real buyer can lift their contracts and all of the sudden they are seriously short or long a position they never wanted to be in ... <strong>which is why the market is normally a better liberator of these things than regulators</strong>. <strong>If I'm a big fund and see someone doing this, I may try and wait for the right time and then buy 5,000 contracts when I see them doing this if I know I need to buy a lot more and squeeze him as a short. That's far more painful to him than a one time fine."</strong></li>
<li>A New York-based quant trader said that regulators absolutely should be tracking spoofing. However, the trader thinks regulators needed someone to blame this time. <strong>"My gut says he is basically being made a target because they need someone to blame for the 'Flash Crash.'</strong> The trader thinks that this <strong>"case smells of political PR"</strong> and that "someone somewhere is really working hard on their career."</li>
<li>The quant also pointed out that the complaint said Sarao had been using the trading algo before the "Flash Crash" and in the years after. If he was the cause of the crash, why did we only have one crash in that period?</li>
<li>One Midwest-based trader said it was "<strong style="line-height: 1.5em;">impossible to have been caused by one trader or even exaggerated."</strong> He added, <strong>"It's insanely entertaining to think an individual or an entity caused that day." </strong></li>
<li>The trader explained that there were "far too many other markets losing liquidity just as fast and in fact FASTER that it's LUDICROUS to think one individual in just the EMINI caused it. Insanely [reckless] in fact."</li>
<li><strong>"To blame them, to blame them for the 'Flash Crash' is absolutely ridiculous. It's beyond ridiculous,"</strong> one trader said. "If anything, OK someone is trying to game the market here. It's f------ stupid."</li>
</ul>
<p>This is the first case brought forth related to the Flash Crash. Traders aren't the only ones showing skepticism.</p>
<p><a href="http://www.businessinsider.com/r-flash-crash-market-manipulation-case-poses-test-for-prosecutors-2015-4">Securities lawyers told Reuters</a> that this case is going to be difficult to prosecute because they have to show that Sarao intentionally canceled orders.</p>
<p>"How do you prove an order is false?" one trader we spoke with asked.</p>
<p>The trader explained this is a "very fast market." He speculated that it would be difficult to just look at the order book and see if someone is intentionally cancelling orders. It's normal for traders to cancel.&nbsp;<span style="line-height: 1.5em;">"You'd have to look at it and see a continuous behavior," the trader said.</span></p>
<p>"Why is it that he had not been caught? ... They noticed but no action was taken for years?"</p>
<p>Sarao was the sole employee of UK-based Nav Sarao Futures Limited. It appears that he traded his personal account&nbsp;<a href="http://www.endole.co.uk/company/05497320/nav-sarao-futures-limited">from his home</a> in a London suburb.</p>
<p><em>If you're a futures trader, we'd love to hear your thoughts. Feel free to reach out to jlaroche@businessinsider.com.</em></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/r-flash-crash-market-manipulation-case-poses-test-for-prosecutors-2015-4" >The 'Flash Crash' market manipulation case is a huge test for US prosecutors</a></strong></p>
<p><a href="http://www.businessinsider.com/traders-think-arrest-is-a-joke-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/sallie-krawcheck-advice-2014-12">Sallie Krawcheck's Advice For Wall Street Analysts</a></p> http://www.businessinsider.com/what-is-spoofing-the-market-2015-4Traders have been 'spoofing' the market and now regulators are finally catching onhttp://www.businessinsider.com/what-is-spoofing-the-market-2015-4
Tue, 21 Apr 2015 16:13:00 -0400Portia Crowe
<p><img style="float:right;" src="http://static5.businessinsider.com/image/55369dcaecad046030514ef8-1199-899/matador-bull-fight-bullfighter-2.png" alt="matador bull fight bullfighter" border="0" /></p><p>On Tuesday, trader Navinder Singh Sarao was <a href="http://www.businessinsider.com/a-trader-has-been-arrested-for-contributing-to-the-2010-flash-crash-2015-4">arrested in London in connection with the Flash Crash of 2010</a>.</p>
<p>His charge: "spoofing."</p>
<p>Sarao's case is just the latest in a recent wave of spoofing investigations being conducted by the Justice Department, the Securities and Exchange Commission and other regulators.</p>
<p>So what is it?</p>
<p>One person who would know is&nbsp;<span>fraud attorney Celiza Bragan&ccedil;a of Stoltmann Law, who worked on a spoofing case while at the SEC in the early 2000s.</span></p>
<p>Bragan&ccedil;a told us spoofing<span style="line-height: 1.5em;">&nbsp;goes like this:</span></p>
<ul>
<li><span style="line-height: 1.5em;">A trader makes a large bet on or against a security.</span></li>
<li><span style="line-height: 1.5em;">The market reacts to that bet &mdash; sending the security's price up or down.</span></li>
<li><span style="line-height: 1.5em;">The trader cancels&nbsp;</span><span style="line-height: 1.5em;">their bet once the market reacts.</span></li>
<li><span style="line-height: 1.5em;">The trader takes advantage of other investors' reactions by betting on or against the security for real.</span></li>
</ul>
<p>Spoofing trades don't make huge amounts of money every time they happen.</p>
<p>"No one's going to make a million dollars on a trade," said&nbsp;Peter Henning,&nbsp;a securities litigation professor at Wayne State University. "You're going to make a dollar on a million trades. And of course, you're not gonna make that same dollar from each person."</p>
<p>When&nbsp;Bragan&ccedil;a took day trader&nbsp;<a href="https://www.sec.gov/litigation/litreleases/lr18926.htm">Stanley Awdisho</a> to court for spoofing some 15 years ago, the practice, also known as a "pull and hit," was little-known, and the term spoofing rarely used. But with the advent of high-speed trading technology, it's become more prominent, and regulators are starting to take note.</p>
<p>Chicago trader Igor Oystacher of 3Red Group is <a href="http://www.wsj.com/articles/how-spoofing-traders-dupe-markets-1424662202">currently under investigation</a> by the Commodity Futures Trading Commission for spoofing in June of 2012. CME Group banned him from trading for a month last year and the FBI is also reportedly looking into the case.</p>
<p>The first spoofing criminal prosecution saw high-frequency trader Michael Coscia of&nbsp;<span id="articleText">Panther Energy Trading</span> <a href="http://www.reuters.com/article/2014/10/02/us-commodities-markets-indictment-idUSKCN0HR1X220141002">fined a reported $3.1 million in October 2014</a> for trades made in July 2013.&nbsp;He was also fined in a civil case brought by the CFTC and the UK's Financial Conduct Authority for trades made in 2011.</p>
<p>The tactic was outlawed in the 2010 Dodd-Frank regulation, but, as with other forms of fraud, it's hard to prove the trader's <em>intent</em> &ndash; in this case, the intent to cancel the order. Prosecutors must prove the trader didn't change his or her mind for legitimate reasons after placing the trade.</p>
<p>High-frequency trading technology has made it even easier than before.<span id="docs-internal-guid-09ff905d-dd2c-5e40-3f6b-a7e4ff331975"></span></p>
<p>"They are truly done in the blink of an eye, and it&rsquo;s designed to take advantage of the algorithms that look for price disparities in the market," said Henning. "Spoofing is signalling. I put in a small order and then a real big one, and I&rsquo;m hoping the big one attracts you, and then you&rsquo;ll throw my small one. And then I just dump the big one."</p>
<h3>Who does it hurt?</h3>
<p>In Henning's view, the fact that highly sophisticated technology is a necessary requirement for spoofing also means that the people who are most affected by it are other sophisticated, high-speed traders.</p>
<p>"This is Wall Street," he said. "Everybody is trying to profit from everyone else."</p>
<p>But he acknowledged that there is some impact on individual investors, mutual funds, pension funds, and other non-Wall Streeters, albeit small.</p>
<p>"It may push the price up a penny at which moment their order is executed. It could be that the price went up 2 or 3 cents... but they may be in there buying or selling at that moment," he said.</p>
<p>Bragan&ccedil;a&nbsp;foresees a wider impact. She worries that if pension funds and other investors cannot count on market regulation, they'll take their investments to other markets outside of the US.</p>
<p>"It's just like insider trading: it appears to be a victimless crime, but there is somebody on the other side who is selling, or buying, and that person is not getting the advantage of the market being able to reflect that information," she said.</p>
<p>She expects to see more spoofing cases taken to court as the SEC and other regulators catch onto the activity.</p>
<p>"That's just the nature of a financial market," she said. "There&rsquo;s a lot of money at stake and the regulators are always going to be a few steps behind. But the key is that they're going to get there."</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/the-bloomberg-feature-every-trader-felt-lost-without-2015-4" >The one Bloomberg feature every trader felt lost without</a></strong></p>
<p><a href="http://www.businessinsider.com/what-is-spoofing-the-market-2015-4#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="http://www.businessinsider.com/robot-carves-michelangelo-statue-unfinished-works-prigioni-2015-3">Watch this robot carve one of Michelangelo's unfinished works</a></p> http://www.businessinsider.com/r-tera-exchange-announces-first-bitcoin-derivative-2014-24Here Comes The First Bitcoin Derivative Tradehttp://www.businessinsider.com/r-tera-exchange-announces-first-bitcoin-derivative-2014-24
Mon, 24 Mar 2014 15:20:00 -0400Douwe Miedema
<p><img style="float:right;" src="http://static4.businessinsider.com/image/533085a9eab8ea635fa1750c-1200-924/bitcoin-112.jpg" border="0" alt="bitcoin" /></p><p>By Douwe Miedema</p>
<p>WASHINGTON (Reuters) - TeraExchange said on Monday it had constructed a swap based on the bitcoin virtual currency, a step that would bring the emerging payment system under the oversight of U.S. regulators for the first time.</p>
<p>The contract, created on behalf of two clients, was a bilateral swap privately negotiated between them. The counterparties had not acted on the agreement, but were expected to do so soon, the company said.</p>
<p>The company said it had shown the contract to the U.S. Commodity Futures Trading Commission, which regulates swaps and futures. If transacted by the counterparties, the contract would need to be reported to the agency.</p>
<p>Regulators have stepped up their efforts to rein in bitcoin after incidents such as the collapse of Mt. Gox, a Tokyo-based exchange that filed for bankruptcy after losing an estimated $650 million worth of customer bitcoins.</p>
<p>Bart Chilton, who stepped down from his position as a member of the CFTC on Friday, told Reuters last week that companies had inquired in the past month about regulations that would govern exchanges for bitcoin derivatives.</p>
<p>Ultimately, TeraExchange plans to list the bitcoin swap on its Swap Execution Facility (SEF), a new type of regulated platform that was set up after the credit crisis to make swaps trading more transparent, less risky, and cheaper.</p>
<p>The company was given a license to run a SEF last year, but no trading has taken place on the platform yet.</p>
<p>The novelty of the bitcoin currency has made it hard to categorize, but trading derivatives such as futures or swaps would subject companies to oversight by the CFTC.</p>
<p>(Reporting by Douwe Miedema; editing by Andrew Hay)</p><p><a href="http://www.businessinsider.com/r-tera-exchange-announces-first-bitcoin-derivative-2014-24#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/obama-funding-wall-street-watchdogs-2014-3Obama Wants More Money For Wall Street Watchdogs http://www.businessinsider.com/obama-funding-wall-street-watchdogs-2014-3
Tue, 04 Mar 2014 15:46:00 -0500Hunter Walker
<p><img src="http://static6.businessinsider.com/image/53163ad8ecad041603de6b3e-800-/barack-obama-tense-2.jpg" border="0" alt="Barack Obama tense" width="800" /></p><p></p>
<p>The budget for fiscal year 2015 <a href="http://www.businessinsider.com/obamas-fiscal-year-2015-budget-summary-2014-3">released by President Barack Obama Tuesday</a> includes <a href="http://blogs.wsj.com/washwire/2014/03/04/budget-2015-white-house-seeks-more-money-for-wall-street-oversight/">increased funding for two regulatory bodies</a>&nbsp;tasked with policing Wall Street.&nbsp;Obama proposed raising funding levels for both the Securities and Exchange Commission and the Commodity Futures Trading Commission <a href="http://blogs.wsj.com/washwire/2014/03/04/budget-2015-white-house-seeks-more-money-for-wall-street-oversight/">by more than 25%</a>. Both agencies&nbsp;<span>are charged with implementing the restrictions imposed on the financial industry by the Dodd-Frank law.</span></p>
<p>Obama's budget would increase the SEC's budget by 26% to $1.7 billion. According to the Wall Street Journal, this added funding would <a href="http://blogs.wsj.com/washwire/2014/03/04/budget-2015-white-house-seeks-more-money-for-wall-street-oversight/">likely be used</a> to hire more investigators and examiners. Since the SEC charges Wall Street firms fees, its budget has no impact on the federal deficit.</p>
<p>The CFTC would get an increase of 30% for a total budget of $280 million in Obama's budget. However, this amount is lower than the $315 million Obama proposed for the agency in last year's budget. An unnamed administration official <a href="http://blogs.wsj.com/washwire/2014/03/04/budget-2015-white-house-seeks-more-money-for-wall-street-oversight/">told the Journal</a> this reduction was a result of spending caps imposed by the two-year budget deal.&nbsp;</p>
<p>CFTC Commissioner Bart Chilton <a href="http://blogs.wsj.com/washwire/2014/03/04/budget-2015-white-house-seeks-more-money-for-wall-street-oversight/">issued a statement</a> Tuesday criticizing the more moderate increase.&nbsp;</p>
<p>"I&rsquo;m frustrated to say: The funding requested is insufficient to do the job," Chilton said.</p>
<p>Obama proposed to pay for the additional CFTC funding with a new fee on financial firms. That plan as well as the White House's prior budget proposal to increase CFTC funding have both previously been unable to get sufficient support in Congress.&nbsp;<span>Once again, not all elements of the president's budget will be accepted, however, it sets the stage for a bipartisan debate in the 2014 mid-term elections.&nbsp;</span><span><br /><br /></span></p><p><a href="http://www.businessinsider.com/obama-funding-wall-street-watchdogs-2014-3#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/hedge-fund-aristocrats-think-advertising-is-uncouth-2013-10Hedge Fund Superstars Think Advertising Is For Upstartshttp://www.businessinsider.com/hedge-fund-aristocrats-think-advertising-is-uncouth-2013-10
Mon, 14 Oct 2013 10:55:00 -0400Saranya Kapur
<p><span style="line-height: 1.5em;"><img style="float:right;" src="http://static5.businessinsider.com/image/525c034ceab8ea114f4c824f-480-/ap04021207156%20(1).jpg" border="0" alt="David and Goliath" width="480" />It has been nearly a month since the JOBS Act allowed hedge funds to advertise, but so far there have been few takers. </span><a href="http://www.ft.com/intl/cms/s/0/17a63c12-3395-11e3-bf1b-00144feab7de.html#ixzz2hhaHUrZb">According to reporting by the FT</a><span style="line-height: 1.5em;">, smaller "upstarts" have shown interest in advertising, but the larger, more established funds view advertising as sign of failure to raise capital.</span></p>
<p><span>Anthony Scaramucci, founder of Sky Bridge Capital, a fund of funds, tells the FT, &ldquo;The Goliaths in our industry are not going to advertise... They think it is gauche and d&eacute;class&eacute;, and their partners already have their private planes and their beachside mansions in the Hamptons, so why disrupt the business model?&rdquo;</span>&nbsp;</p>
<p><a href="http://www.investmentnews.com/article/20131013/REG/310139977">Investment News</a> also reported that&nbsp;<span>advertising could draw regulatory attention to hedge funds, which are "notoriously private". A fund that wants to advertise would need to notify the SEC and disclose its solicitation materials, which would expose them to the SEC's scrutiny.&nbsp;</span></p>
<p><span></span><span style="line-height: 1.5em;">Another reason is that there is still uncertainty surrounding the advertising rule. While the SEC has allowed advertising, the Commodity Futures Trading Commission has yet to authorize it, which could impact some firms trading certain derivatives transactions.&nbsp;</span></p>
<p><span><span>But for smaller hedge funds, advertising could provide just the exposure they need.&nbsp;&ldquo;It presents an opportunity for the Davids to come in with their slingshot, and we are working on our messaging right now. If you choose the right weaponry, you can take out Goliath,&rdquo; <a href="http://www.ft.com/intl/cms/s/0/17a63c12-3395-11e3-bf1b-00144feab7de.html#ixzz2hhaHUrZb">Scaramucci told the FT.</a></span></span></p><p><a href="http://www.businessinsider.com/hedge-fund-aristocrats-think-advertising-is-uncouth-2013-10#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/cftc-charges-against-jon-corzine-2013-6The CFTC Has Charged Jon Corzine With 'Unlawful Misuse' Of Nearly $1 Billion Of Customer Fundshttp://www.businessinsider.com/cftc-charges-against-jon-corzine-2013-6
Thu, 27 Jun 2013 15:12:00 -0400Linette Lopez
<p><img style="float:right;" src="http://static6.businessinsider.com/image/51c9a442ecad040e5e00001b-480-/jon-corzine.png" border="0" alt="jon corzine" width="480" /></p><p>The CFTC has officially charged Jon Corzine with<a href="http://www.cftc.gov/PressRoom/PressReleases/pr6626-13"> "unlawful misuse of nearly $1 billion of customer funds and related violations."</a> MF Global employee Edith O'Brien is also being charged.</p>
<p>It's impossible to forget how Corzine jettisoned MF Global in the fall of 2011. It's reported that Corzine had made a massive bet on the European bond market that backfired miserably. As a result, his firm started hemorrhaging money.</p>
<p>What's at issue in this case is whether or not, as his ship was going down, Corzine used customer funds as a life raft to keep his firm going until it finally sank.</p>
<p>From the CFTC:</p>
<p style="padding-left: 30px;">In the summer and fall of 2011, as MF Global&rsquo;s need for cash was rising and its sources of cash were diminishing, Corzine knew that the firm was relying more and more on proprietary funds that it held alongside customer funds in FCM customer accounts. During this time, Corzine did not enhance MF Global&rsquo;s deficient systems and controls sufficiently to ensure that the firm&rsquo;s increasing reliance on FCM cash did not result in unlawful uses of customer money. Ultimately, these failures contributed to the massive customer losses.As alleged, during October 2011, MF Global was on the brink of failure and in desperate need of cash to survive.</p>
<p style="padding-left: 30px;"><strong>As Holdings&rsquo; Treasurer told Holdings&rsquo; CFO at that time, in one of many recorded phone calls obtained by the CFTC, the firm was &ldquo;skating on the edge,&rdquo; without &ldquo;much ice left.&rdquo; Corzine was warned about the firm&rsquo;s liquidity stresses, and he knew that the firm violated its own policy that had been designed to protect customer funds. Holdings&rsquo; Treasurer recommended to Holdings&rsquo; CFO in a recorded call, <em>&ldquo;we have to tell Jon that enough is enough. We need to take the keys away from him.&rdquo;</em></strong></p>
<p style="padding-left: 30px;">In the last week of October 2011, with virtually no other sources of immediate cash to turn to, the firm repeatedly and unlawfully used customer funds for firm needs, ultimately leaving it nearly $1 billion short of customer funds. In that last week, Corzine is alleged to have been aware of the firm&rsquo;s true low cash balance, even as he directed the firm to continue paying large obligations without inquiring how the firm could come up with the money to do so. Corzine is charged for the firm&rsquo;s violations as an MF Global &ldquo;control person&rdquo; who, among other things, did not act in good faith and is also charged with violating his legal obligations to diligently supervise.</p>
<p>The CFTC is seeking "full restitution" of the missing funds, plus a $100 million penalty from *MF Global. That will be up to the Court to decide.</p>
<p>In reponse, Corzine's lawyer, Andy Levander has released a statement <a href="http://www.businessinsider.com/corzines-lawyer-statement-2013-6">calling these allegations "meritless." </a></p>
<p>Below check out the full release <a href="http://www.cftc.gov/PressRoom/PressReleases/pr6626-13">from the CFTC:</a></p>
<p style="padding-left: 30px;">Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today filed an enforcement action in the United States District Court for the Southern District of New York against MF Global Inc. (MF Global), a registered futures commission merchant (FCM), MF Global Holdings Ltd. (Holdings), former Chief Executive Officer of MF Global and Holdings Jon S. Corzine, and former Assistant Treasurer of MF Global Edith O&rsquo;Brien based on, among other violations, MF Global&rsquo;s unlawful use of customer funds that harmed thousands of customers and violated fundamental customer protection laws on an unprecedented scale.</p>
<p style="padding-left: 30px;">MF Global has agreed to settle all charges against it on terms set forth in a proposed order that is subject to court approval and includes 100% restitution of the approximately $1 billion lost by all commodity customers when the firm failed on October 31, 2011. Commissioner Jill Sommers stated, &ldquo;I am pleased that the MF Global Trustee has agreed to settle the charges against the company. There is nothing more important than doing everything possible to make full restitution to all commodity customers. I am also proud of the members of the Division of Enforcement team, who have worked so hard on this case to bring us to where we are today.&rdquo;</p>
<p style="padding-left: 30px;">According to the Complaint, Corzine, a former U.S. Senator and New Jersey Governor with more than twenty years of Wall Street experience, joined MF Global as CEO in March 2010 with a plan to transform the firm from a futures broker into a major investment bank. Corzine&rsquo;s strategy called for making increasingly risky and larger investments of the firm&rsquo;s money. In the summer and fall of 2011, as MF Global&rsquo;s need for cash was rising and its sources of cash were diminishing, Corzine knew that the firm was relying more and more on proprietary funds that it held alongside customer funds in FCM customer accounts. During this time, Corzine did not enhance MF Global&rsquo;s deficient systems and controls sufficiently to ensure that the firm&rsquo;s increasing reliance on FCM cash did not result in unlawful uses of customer money. Ultimately, these failures contributed to the massive customer losses.</p>
<p style="padding-left: 30px;">As alleged, during October 2011, MF Global was on the brink of failure and in desperate need of cash to survive. As Holdings&rsquo; Treasurer told Holdings&rsquo; CFO at that time, in one of many recorded phone calls obtained by the CFTC, the firm was &ldquo;skating on the edge,&rdquo; without &ldquo;much ice left.&rdquo; Corzine was warned about the firm&rsquo;s liquidity stresses, and he knew that the firm violated its own policy that had been designed to protect customer funds. Holdings&rsquo; Treasurer recommended to Holdings&rsquo; CFO in a recorded call, &ldquo;we have to tell Jon that enough is enough. We need to take the keys away from him.&rdquo;</p>
<p style="padding-left: 30px;">In the last week of October 2011, with virtually no other sources of immediate cash to turn to, the firm repeatedly and unlawfully used customer funds for firm needs, ultimately leaving it nearly $1 billion short of customer funds. In that last week, Corzine is alleged to have been aware of the firm&rsquo;s true low cash balance, even as he directed the firm to continue paying large obligations without inquiring how the firm could come up with the money to do so. Corzine is charged for the firm&rsquo;s violations as an MF Global &ldquo;control person&rdquo; who, among other things, did not act in good faith and is also charged with violating his legal obligations to diligently supervise.</p>
<p style="padding-left: 30px;">David Meister, the CFTC&rsquo;s Enforcement Director, said, &ldquo;Turning a profit is not the only job of the person at the top of a CFTC-regulated firm. Particularly in times of crisis, the person in control, like the CEO here, must do what&rsquo;s necessary to prevent unlawful uses of customer money, so that customers&rsquo; money is still there if and when the music stops. The allegations in our Complaint serve as a stark reminder that we will enforce the law against responsible individuals at all levels of a firm to ensure that customer funds are properly safeguarded every minute of every day.&rdquo;</p>
<p style="padding-left: 30px;">O&rsquo;Brien, MF Global&rsquo;s Assistant Treasurer, is charged with aiding and abetting the firm&rsquo;s misuse of customer funds. According to the Complaint, she directed, approved, and/or caused improper transfers of hundreds of millions of dollars from customer accounts to help meet the firm&rsquo;s needs during the final days of October 2011, while knowing that MF Global did not have sufficient proprietary funds available in those customer accounts for those transfers. The Complaint alleges that O&rsquo;Brien remarked in a recorded telephone conversation that it &ldquo;could be game over&rdquo; from a regulatory perspective if funds were not returned to customer accounts on Friday, October 28, 2011, MF Global&rsquo;s final business day.</p>
<p style="padding-left: 30px;">With respect to the company defendants, in addition to the misuse of customer funds described above, the Complaint charges that MF Global (i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts; (ii) filed false reports with the CFTC that failed to show the deficits in the customer accounts; and (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation; and that Holdings controlled the operations of MF Global and is therefore liable as a principal for MF Global&rsquo;s violations of the Commodity Exchange Act and CFTC regulations.</p>
<p style="padding-left: 30px;">If approved by the United States District Court and the United States Bankruptcy Court, the proposed settlement of all charges against MF Global will require 100% restitution of all remaining commodity customer claims. The proposed order also includes the imposition of a $100 million penalty, which can be paid to the extent MF Global has not fully exhausted all available funds and assets paying customers and then other creditors entitled to priority under bankruptcy law.</p>
<p style="padding-left: 30px;">The CFTC also seeks full restitution and penalties against Holdings, Corzine, and O&rsquo;Brien, in addition to trading and registration bans and injunctions against Corzine and O&rsquo;Brien.</p>
<p style="padding-left: 30px;">The CFTC appreciates the assistance of the U.S. Attorneys&rsquo; Offices for the Southern District of New York and the Northern District of Illinois, the Federal Bureau of Investigation, the Securities and Exchange Commission, and the Financial Conduct Authority in the United Kingdom.</p>
<p style="padding-left: 30px;">CFTC Division of Enforcement staff members responsible for this case are Candice Aloisi, Elizabeth Brennan, Patryk Chudy, Christopher Giglio, Sheila Marhamati, David W. Oakland, Joseph Rosenberg, Michael Berlowitz, Karin Roth, Chad Silverman, K. Brent Tomer, Douglas K. Yatter, Steven Ringer, Lenel Hickson, Stephen J. Obie, and Vincent McGonagle. Jeremy Christianson from the CFTC&rsquo;s Office of Data and Technology also assisted in this matter, along with staff from the CFTC&rsquo;s Division of Swap Dealer and Intermediary Oversight and Division of Clearing and Risk.</p>
<p>*This article previously stated that the CFTC would seek a $100 million penaltyfrom Corzine himself. In fact that money will be sought from the firm.</p><p><a href="http://www.businessinsider.com/cftc-charges-against-jon-corzine-2013-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/latency-in-trading-2013-6IT FINALLY COMES OUT: Elite Traders Are Getting Access To Data Before Everyone Elsehttp://www.businessinsider.com/latency-in-trading-2013-6
Thu, 13 Jun 2013 12:41:00 -0400Linette Lopez
<p><img style="float:right;" src="http://static1.businessinsider.com/image/51b9eb0069bedd5069000063-480-/nanex-consumer-confidence-number-1.png" border="0" alt="Nanex Consumer Confidence number " width="480" /></p><p>In the past few days people have finally started paying attention to a funny thing going on in the market.</p>
<p>Time after time ahead of major news, there seems to be someone who knows something before it happens &mdash; there seem to be trades that hit too hard and fast before the news is actually made.</p>
<p>This has been going on for a while, and people are finally starting to understand why.</p>
<p>The current target of collective ire is Thomson Reuters. There was some <a href="http://www.businessinsider.com/shady-trading-before-consumer-confidence-2013-5">shady trading ahead of the Consumer Confidence number</a> at the end of last month. About a quarter of a second before the number was released, there was an eruption of orders in the SPDR S&amp;P Sector ETF (SPY), the e-Mini (electronically traded futures), and in hundreds of stocks, according to <a href="http://www.nanex.net/aqck2/4302.html">Nanex</a>, a market research firm.</p>
<p>After some digging <a href="http://www.cnbc.com/id/100810766">CNBC's Eamon Javers</a> reported that the source of the early trading was Thomson Reuters. The company has a well-known deal with the University of Michigan, the source of the data, that allows Thomson Reuters to release that data 5 minutes before it's supposed to come out (9:55 am) to clients who pay for that privilege.</p>
<p>But Thomson Reuters also provides a service called &ldquo;ultra-low latency,&rdquo; which allows premium customers to get numbers like Consumer Confidence and the <a href="http://www.cnbc.com/id/100810766">Institute for Supply Management's manufacturing index </a>number 2 seconds before it's released to the general public for $2,000 a month.</p>
<p>Two seconds in high-frequency trading time is an eternity.</p>
<p>The University of Michigan responded to this by saying, essentially, &ldquo;we do it because people pay for it.</p>
<p><a href="http://online.wsj.com/article/SB10001424127887324682204578515963191421602.html">From The WSJ:</a></p>
<p style="padding-left: 30px;">Richard Curtin, an economist who runs the university's survey, said he knows the deal gives an advantage to select investors.</p>
<p style="padding-left: 30px;">&ldquo;Hardly anyone would pay for it if they didn't see a profit motive,&rdquo; Mr. Curtin said. Later, he added: &ldquo;This research is totally funded by private sources for the benefit of scientific analysis, to assess public policy, and to advance business interests. Without a source of revenue, the project would cease to exist and the benefits would disappear.&rdquo;</p>
<p>Before we put on our self-righteous anger hats and ride over to Thomson Reuters pitchforks in hand, let's be real. They aren't the only ones doing this.</p>
<p>To get the ISM number early, you also have to pay a $1,025 fee if you don't have a high-speed connection to exchanges, <a href="http://online.wsj.com/article/SB10001424127887324682204578515963191421602.html">according to The WSJ. </a></p>
<p>Again, that's if you don't already have one.</p>
<p>See, exchanges have their own form of latency. While Thomson Reuters is assisting firms trading on news (a strategy called <a href="http://online.wsj.com/article/SB10001424127887324682204578515963191421602.html">&ldquo;event jumping&rdquo; and/or &ldquo;news feed trades&rdquo;</a>), exchanges have admitted to allowing latency based on when they send out trade confirmations and how technologically advanced and connected a firm is to the exchange.</p>
<p><a href="http://online.wsj.com/article/SB10001424127887323798104578455032466082920.html?mod=WSJ_hp_mostpop_read">Scott Patterson from The Wall Street Journal</a> reported this in early May, and barely anyone made a peep. The CME even admitted that there are &ldquo;times when customers experience a latency of a few milliseconds between the time they receive their trade confirmations and when the information is accessible on the public feeds.&rdquo;</p>
<p>Traders have a bunch of strategies for how to take advantage of this information, but it's really all the same thing &mdash; some people have information before other people. Not because they're smart, but because they pay for that privilege.</p>
<p><a href="http://www.cnbc.com/id/100810766">CNBC's John Carney</a> compared that to the &ldquo;expert networks&rdquo; under major scrutiny by regulators and the infamous Goldman Sachs &ldquo;trading huddles,&rdquo; in which research analysts met to pass tips on to traders and favored clients, and for which Goldman was fined tens of millions of dollars.</p>
<p>When it comes to latency, regulators have really done nothing. There are no rules. It's the Wild Wild West. Commodities Futures Trading Commission head Bart Chilton was on CNBC this morning and basically said ... &ldquo;welp, this sucks guys, but you're on your own for now.&rdquo;</p>
<p>Here's a transcript of the <a href="http://video.cnbc.com/gallery/?play=1&amp;video=3000174391">conversation he had with Kayla Taucshe and Andrew Ross Sorkin</a> (emphasis ours):</p>
<p style="padding-left: 30px;">Chilton says: &ldquo;It may not be illegal, but I think it's unfair. Information is a commodity. I mean, forget about an hour-long massage for $100. Thomson Reuters is paying a million dollars to get a two-second advantage from the University of Michigan.&rdquo;</p>
<p style="padding-left: 30px;">Sorkin: Right.<br /> <br /> Chilton: What that means is that two seconds.<br /> <br /> Sorkin: This is the Consumer Confidence survey?<br /> <br /> <strong>Chilton: Right. That two seconds can impact markets a lot. These are millisecond markets, and two seconds is huge for them.</strong><br /> <br /> <strong>Sorkin: So my position on this is actually I'm not that bothered by this. I look at the news industry and I say if you want to get Bloomberg News, for example, you have to have a terminal, that's $20,000. You can get this news on the website, but you'll get it later. If you have a Dow Jones terminal, you can get access to Wall Street Journal's stories in advance. All of those things cost money and they are premium tiers for this information. So I'm unclear why we decided this information is somehow more valuable or a public good than other news organizations.</strong><br /> <br /> Put news organizations aside. Dana Telsey who is an analyst in the retail business &mdash; she does a survey. She is constantly surveying retailers. If you pay for the research you get the research. If you don't pay for it, you don't get it.<br /> <br /> <strong>Tausche: Bloomberg News owns Bloomberg News stories. This is Thomson Reuters taking third-party information.</strong><br /> <br /> Sorkin: This is buying it the same way if I were to hire five reporters to go do the survey. I'm hiring the University of Michigan to go do the survey. It's the same thing.<br /> <br /> <strong>Chilton: Keep in mind what you're saying ... and look, it's a debate. And we're gonna do a concept release on a bunch of these technology issues in a month or so. And I'll be talking about it in a week, with regard to our fine furry friend the cheetahs. But, it's all about money. Right? So, if you have the money to afford these extra services &mdash; if you can have five reporters, if you can have a supercomputer and do high speed trading, yeah, you can be in the markets. Is that really where we wanna go, Andrew? That you have to have the money, that you have to have the best, fastest computers?</strong></p>
<p>So that's the question here &mdash; do we want the market to be a meritocracy or do we want to surrender it to the robots &mdash; actually not even the robots, the people who can pay for them.</p>
<p>Bloomberg News editor Matt Winkler sent a letter to the University of Michigan arguing that, while there are no specific regulations about latency, it seems to be a violation of a more general SEC rule, Regulation FD.</p>
<p>From the letter:</p>
<p style="padding-left: 30px;">This doesn't contribute to a fully informed market as required by the U.S. Securities and Exchange Commission's Selective Disclosure and&nbsp; Insider Trading Rule. Regulation FD, as it is called, was approved by the SEC in August 2000 partly in response to reporting by Bloomberg&nbsp; News that showed the wide prevalence of selective disclosure of material information.</p>
<p>And for all the cynics out there &mdash; yes, there have always been ways for people to pay to game the market. But there are regulations for them. That's the difference here. We have to strive to be better, for now, in this case we're not even trying.</p>
<p>You can check out how crazy trading gets ahead of important news (in this case Consumer Confidence) in the video below, provided by Nanex.</p>
<p><iframe width="420" height="315" frameborder="0" src="http://www.youtube.com/embed/eG9fYsIfuJA"></iframe></p><p><a href="http://www.businessinsider.com/latency-in-trading-2013-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/cftc-considering-bitcoin-regulation-2013-5REPORT: The CFTC Is Considering Regulating Bitcoinhttp://www.businessinsider.com/cftc-considering-bitcoin-regulation-2013-5
Mon, 06 May 2013 14:58:00 -0400Rob Wile
<p><span style="font-size: 15px; line-height: 1.5em;"><img style="float:right;" src="http://static6.businessinsider.com/image/5187fe74eab8ea2e1c000008-400-300/bart-chilton.png" border="0" alt="bart chilton" />The Financial Times </span><a href="http://www.ft.com/intl/cms/s/0/b810157c-b651-11e2-93ba-00144feabdc0.html#axzz2SXW5ro8d">reports</a><span style="font-size: 15px; line-height: 1.5em;"> exclusively the Commodities Futures and Exchange Commission is studying whether Bitcoin would fall under their purview.</span></p>
<p>CFTC head Bart Chilton told the paper Bitcoin&nbsp;<span>&ldquo;is for sure something we need to explore,&rdquo; adding, "It's not monopoly money."</span></p>
<p><span>Another anonymous source&nbsp;</span><span style="font-size: 15px; line-height: 1.5em;">said that the regulator is &ldquo;seriously&rdquo; examining the issue.</span></p>
<p><span style="font-size: 15px; line-height: 1.5em;">A final decision may hinge on whether traders start creating derivative products from the Bitcoin market, the FT says.</span></p>
<p><span style="font-size: 15px; line-height: 1.5em;">Bitcoin has seen a surge in prices over the past month and a half as some Europeans began looking for alternative ways to conduct transactions around faltering banks. As it's added users, it's also gained a higher profile in the business press.</span></p>
<p>Bitcoin was trading around $120 today on Japan's Mt. Gox exchange.</p>
<p><a href="http://www.ft.com/intl/cms/s/0/b810157c-b651-11e2-93ba-00144feabdc0.html#axzz2SXW5ro8d"><em>Click here to read the full story on FT.com &gt;</em></a></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/canadian-banks-closing-bitcoin-businesses-2013-4" >Bitcoin Dealers Are Running Into Problems In Canada ></a></strong></p>
<p><a href="http://www.businessinsider.com/cftc-considering-bitcoin-regulation-2013-5#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/matthew-taylor-compensation-at-age-29-2013-4Ex-Goldman Trader Was Going To Be Paid $2 Million At Age 29 But To Boost His Rep He Amassed An $8.3 Billion Bethttp://www.businessinsider.com/matthew-taylor-compensation-at-age-29-2013-4
Thu, 04 Apr 2013 09:31:00 -0400Julia La Roche
<p><img style="float:right;" src="http://static6.businessinsider.com/image/515d7dd7ecad04f91200001d-400-300/matthew-marshall-taylor.png" border="0" alt="Matthew Marshall Taylor" width="400" height="300" /></p><p>Former <a class="hidden_link" href="http://www.businessinsider.com/blackboard/goldman-sachs">Goldman Sachs</a> trader Matthew Marshall Taylor pleaded guilty yesterday to hiding an $8.3 billion trading position from the bank back in 2007.&nbsp;He was only 29 at the time. &nbsp;&nbsp;</p>
<p>As a result, Goldman ended up losing than $100 million unwinding the position, <a href="http://cftc.gov/PressRoom/PressReleases/pr6450-12">according to the Commodity Futures Trading Commission.</a>&nbsp;Goldman also had to pay a $1.5 million civil penalty late last year for failing to diligently supervise Taylor.&nbsp;</p>
<p>The young trader said&nbsp;that he amassed huge bet in S&amp;P 500 e-mini futures because he wanted to augment his reputation at the firm and increase&nbsp;<span>performance-based compensation, <span>The&nbsp;</span><a href="http://online.wsj.com/article/SB10001424127887324600704578400332210938670.html?mod=markets_newsreel">Wall Street Journal reported.</a></span></p>
<p><span>But get this...&nbsp;</span></p>
<p><span>Taylor was going to be paid almost $2 million that year anyway. &nbsp;Prosecutors said he had a $150,000 base salary and an expected $1.6 million bonus, according to the <a class="hidden_link" href="http://www.businessinsider.com/blackboard/wsj">WSJ</a>.</span></p>
<p><span>According to&nbsp;</span><a href="http://brokercheck.finra.org/Support/ReportViewer.aspx?SearchGroup=Individual&amp;FirmKey=-1&amp;BrokerKey=3255250">FINRA records,</a>&nbsp;Taylor left Goldman in 2008 and went to <a class="hidden_link" href="http://www.businessinsider.com/blackboard/morgan-stanley">Morgan Stanley</a> where he worked until August 2012. &nbsp;Taylor had previously&nbsp;worked at&nbsp;Morgan Stanley&nbsp;from 2001 to 2005 before joining Goldman.&nbsp;&nbsp;</p>
<p><span>The former trader pleaded guilty to one count of wire fraud yesterday. He could face up to 20 years in prison. The sentencing is scheduled for July 26.</span></p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/rogue-traders-2011-9" >The Most Notorious Rogue Traders In History</a></strong></p>
<p><a href="http://www.businessinsider.com/matthew-taylor-compensation-at-age-29-2013-4#comments">Join the conversation about this story &#187;</a></p>